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Credit or Debit card: Which one is more viable?

Increased adoption of Credit, Debit cards in India, started a debate on which one is good for you? Benefits of each and their risks, rewards explained for you to make a wiser decision.

Credit Vs Debit Cards

Most of the people these days owns either a credit card or a debit card and many of us own both the cards. A debit card and a credit card function differently. A debit card is issued by bank once you open an account with the bank, and the debit card is directly linked with the bank account of the customer. Once debit card is swiped for any payment, the money immediately gets deducted directly from the bank account.

On the contrary, credit card allows a customer to buy products or make bill payments on credit and pay it back within a certain period of time. Credit card is issued by the banks depending on the credit history and eligibility of the customers.

What is the Purpose?

Credit card allows the cardholders to purchase goods and services on credit and pay after a grace period of 30 to 50 days depending on the option provided by the bank.

In case of debit card, the amount is immediately deducted. A person has the option of converting credit card payments into EMIs, whereas in debit cards no credit facility is available, as you instantly pay from your own available money in the bank account.

Credit cards provide better security in case of faulty transaction whereas there is less security in case of faulty transactions with debit cards, as the money gets deducted instantly directly from your account.

Credit card usually has a joining fee and a yearly fee whereas debit cards are usually issued free with savings bank account. On credit cards, interest or penalty is charged on non-payment or late payment of credit dues, whereas on debit cards there is no penalty or interest charged as the amount gets deducted immediately from your account.

Option

Credit card is considered a better option compared to debit card as when you swipe a credit card the payment is done by the bank to the vendor and no amount is charged from the card holder. The card holder usually gets a grace period between 30-50 days for repayment of the dues without any interest charges during this period. When you swipe your debit card payment is immediately deducted from your bank account. Credit card helps to improve CIBIL score.

A good credit score is very important to get any sort of loans or finances from the bank. Timely payment of all credit card dues is very important, or else, the credit score can get reduced. Regular usage of credit card and timely payment of dues helps to build a strong history for a first-time borrower which can easily help to avail loans from banks.

EMI Facility

If you purchase a product using your credit card, you not only get time to pay the amount after a month or so but also you can convert it into EMI options if you are unable to pay the full amount at a time. In debit card you make the entire payment at one go.

Rewards

Credit card offers various rewards to customers such as cashback options, fuel points, air miles, discounts on brands and online purchases, gifts, among others. In case of debit cards, it is rare as most debit cards are not part of reward programmes.

Quick Facts

Debit vs Credit Cards issued in India as on Dec 2019 per RBI:

Debit Cards : 94%
6%

  • Total Debit / Credit Cards issued in India: 86 Crore
  • 96% of them are Debit Cards.


Credit card spend is expected to grow ~2.5 times by CY 2024

By CY 2024
Growth: 2.5X
Upto ~CY 2019
1X

Security

Credit card provides the opportunity to withhold a disputed payment, and by contacting the credit card helpline you can initiate an investigation, that can potentially result in refunds. In the case of a debit card, there is no liability protection for the cardholders.

Debit card Benefits

Debit cards too is a preferred mode of payment option for many people as it helps to restrict purchases within your means and not go overboard with spends. You don't have the risk of missing your credit card payment due date and end up paying high interest charges. Sometimes credit card payments may not be acceptable while booking a hotel and few other places, in such cases having a debit card is important.


Conclusion

  1. You should opt for a credit card if you are disciplined enough to pay dues on time.
  2. Disciplined swiping of a credit card can provide huge financial benefits to the cardholder.
‭However, if you are one of those who forgets or fails to pay on time, then it is better to stick to debit card only, as penalty charges are very high on credit cards. You should have both the cards and use it judiciously for more benefits.

Quick Facts

Credit Cards
  • Product of choice for millennials
  • Builds Credit History
  • Ability to extend Credit Line
  • Rewards, Points, Savings
  • Yearly Fees to be paid
  • Risk of hight interest charges
Debit Cards
  • Good for those who are disciplined
  • Controls the instinct toy buy more than what you can
  • No flexibility, rewards, no extended Online protection

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